Chapter 2

Organizational
Environments and
Cultures

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What Would You Do?
 The “Southwest” of Europe
 Stiff competition from “go” & rising
costs
 How do you react to the
competition & political pressures?
 What would you do?

©2004 by Nelson, a division of Thomson Canada Limited

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Learning Objectives:
External Environments
After reading the next four sections, you
should be able to:

1. discuss how changing environments affect

organizations
2. describe the four components of the general
environment
3. explain the five components of the specific
environment
4. describe the process of that companies use to
make sense of their changing environments
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Changing Environments
 Environmental
complexity and
munificence
 Environmental
change
 Uncertainty

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Environmental Change
 The rate at which a
company’s general and
specific environments change
 stable environments
 dynamic environments
 Punctuated equilibrium
theory
 Companies cycle through stable and
dynamic environments
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Environmental
Complexity and
Munificence
Environmental complexity
 The number of external factors in

the environment that affect

organizations
 Simple environments

have few environmental factors
 Complex environments
 have many environmental factors
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Environmental
Munificence
 The degree to which an
organization’s environment has an
abundance or scarcity of critical
organizational resources

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Environmental Change,
Complexity, and
Munificence

Exhibit 2.1
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Uncertainty

 How well managers can

understand or predict the
external changes and
trends affecting their
businesses

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 General and Specific
Environments

Exhibit 2.2
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General Environment
 Economy
 Technological Component
 Sociocultural Component
 Political/Legal Component

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Economy
 Growing versus shrinking
economies
 Future economic activity is difficult
to predict
 Business confidence indices
 managers’ confidence in the growth
of the economy

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Technological
Component
 Technology is the knowledge,
tools, and techniques used to
transform inputs (raw materials,
information, etc.) into outputs
(products and services)
 Technological changes can benefit
or threaten businesses

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Sociocultural
Component
 Refers to the demographic
characteristics and general
behaviour, attitudes and beliefs of
people in a particular society
 Two important components
 Demographic changes
 Changes in behaviour, attitudes, and
beliefs
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Political/Legal
Component
 Includes the legislation, regulation,
and court decisions that govern
and regulate business behaviour
 Managers must be aware of
relevant laws and regulations
 Education is a key component

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Specific Environment
 Customer Component
 Competitor Component
 Supplier Component
 Industry Regulation Component
 Advocacy Groups

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Customer Component
 Companies cannot exist without
customers
 Managers must monitor customer
wants and needs
 reactive

responding after the fact
 proactive
 anticipating problems
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Competitor Component
 Companies in the same industry
that sell similar products or
services to customers
 Competitive analysis
 deciding who your competitors are
 anticipating competitors’ moves
 determining competitors’ strengths
and weaknesses
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Supplier Component
 Companies that provide material,
human, financial, and
informational resources to other
companies
 Supplier & buyer dependence
 Opportunistic vs. relationship
behaviour

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Industry Regulation
Component
 Consists of regulations and rules
that govern the business practices
and procedures of specific
industries, businesses, and
professions

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Advocacy Groups
Groups of concerned citizens who
band together to try to influence the
business practices of specific
industries, businesses, and
professions.
Influence techniques:
 public communications
 media advocacy
 product boycott
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Making Sense of
Changing Environments
 Environmental scanning
 Interpreting environmental factors
 Acting on threats and opportunities

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Environmental
Scanning
Searching the environment for
important events or issues that
might affect an organization.
Scanning:
 reduces uncertainty
 alters organizational strategies
 contributes to organizational
performance
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Interpreting
Environmental Factors
 Managers determine what
environmental events and issues
mean to the organization
 Opportunities versus threats

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Acting on Threats
and Opportunities
 Managers have to decide how to
respond to these environmental
factors
 Cognitive maps
 simplified models of external
environments
 depicts how managers believe
environmental factors relate to
possible organizational actions
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 Cognitive Maps

Exhibit 2.4
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Learning Objectives:
Internal Environments
After reading the next section,
you should be able to:

5. explain how organizational

cultures are created and how they
can help companies be
successful

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Organizational Cultures:
Creation, Success, and
Change
 Creation and maintenance of
organizational cultures
 Successful organizational cultures
 Changing organizational cultures

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Creation and
Maintenance of
Organizational Cultures
 Visible artifacts
 Company founders help create
culture
 Cultures are maintained through:
 stories
 organizational heroes
 rituals, ceremonies, and symbols

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Successful
Organizational Cultures

Exhibit 2.5
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Changing
Organizational Cultures
 Behavioural addition
 is the process of having managers and
employees perform a new behaviour
 Behavioural substitution
 is having managers and employees perform
a new behaviour in place of another
behaviour
 Change visible artifacts
 Such as the office design and layout,
company dress codes, etc.
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What Really Happened?
 Challenges in the economic,
supplier, competitor, and industry
components
 Avoids travel agents by using the
Web
 Directly confronts competitors and
regulators
 Experiences new opportunities
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